Definition of Audit Report Format Generally, the audit report is a written document issued by the internal auditors wherein they express their observations and opinion about the current condition of the business and how it offers comply with GAAP (usually accepted accounting practices). This is a critical document because it is used for purposes of complying with GAAP principles and the requirements of GAAP; as well as to provide management with an understanding of the risks, objectives, and methods of operating a business. Auditors are required to provide their clients with such reports on an annual basis or as frequently as necessary.
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There are three standard formats in which an auditor presents the audit report format. The first is called the unqualified audit opinion format in which the auditor gives his or her opinion, without being asked for qualifications, about the scope and results of an audit conducted under the supervision of the board of directors. The second is the qualified audit opinion format in which the auditor presents his or her qualifications and expertise about the results of the audit conducted. The last is the unqualified audit agreement format in which the auditor explains why he is qualified to present his opinion about the scope and results of an audit conducted under the supervision of the board of directors.
The unqualified opinion is not legally binding on the rest of the board members. Consequently, the unqualified opinion is not as influential as the qualified opinion. Certified opinion is usually the only legal opinion that the management requires to approve its internal audit report format. Certified opinion requires the accountant to meet the requirements laid down in GAAP, which generally requires him or her to have a master’s degree in accounting or a similar field. Certified opinion is considered the most reliable form of auditing opinion and the only one capable of providing trustworthy information to the management.
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The audit report format that can be required by a company when it is audited is called the standard format. It is more formal than the unqualified opinion and the certified opinion. However, some companies prefer to use the special or specialty audit report format. Among the specialty formats, the special or specialty format has been used most often by companies who are highly dependent on written communications and are reluctant to have their communications subjected to the provisions of general auditing procedures.
In general, there are three types of audit reports that companies have to present to the auditing committee of the board of directors or the management: the summary of the audit findings, the report of the management’s intent to revise the internal audit report format and the recommendation. The audit summary and the management’s recommendation are considered to be part of the standardized audit summary templates that are available in various formats such as Microsoft Excel and PowerPoint. The standalone financial statements templates can be opened in a word processing program such as Word and then saved onto the desired template. Some companies also choose to send the draft to the audit team so that they can make changes before sending the final version of the audit report format.
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The other types of templates are more specific. For instance, if the audit focuses on detecting the existence and size of significant deficiencies, then the summary of the audit should provide additional information to describe the nature and extent of the deficiencies so that the management can take remedial action. If the company is required to develop plans to correct the deficiencies, then the plans must be described in the audit report. Finally, the audit report must contain a recommendation to the CPA to approve the changes to the internal control plan.
One important thing to remember when designing an internal control plan is that the auditor should not include in the report format a proposed corrective action for correcting the significant deficiency. Rather, the auditor must describe why the company need not take remedial action and why a corrective action does not affect the Company’s ability to comply with its ethical obligations. For example, a company might internally develop a process for determining whether it is in the best interests of a customer to change supplier selection. That internal procedure could be considered a significant deficiency in an internal control report.
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The CPA will require an explanation of why the auditor did not uncover evidence of an unethical act or other illegal activity. In general, the auditor will warn the CPA not to include the requested item in the audit because doing so would create a false impression in the mind of the auditor (i.e., the auditor may view the items as necessary but not important). However, some companies may allow the auditor to insert references to prohibited activities after the audit has completed. The auditor will then review the proposed modifications to the internal control plan and provide an opinion as to whether those actions, if approved, would prevent the company from becoming subjected to a variety of actions that would constitute a breach of its representations, fiduciary duties, or other legal obligations.
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